White launches prepaid tuition plan inquiry

(Crain's) — Illinois Secretary of State Jesse White is the latest official to probe the Illinois Student Assistance Commission's handling of the College Illinois prepaid tuition program.

Mr. White's Securities Department is conducting an inquiry into some of the investment managers with which ISAC has invested parents' college savings, a spokesman confirmed Tuesday. He declined to name the investment managers or provide other specifics on the investigation.

Illinois Attorney General Lisa Madigan and Illinois Auditor General William Holland also are investigating the program. The inquiries came after Crain's reported on funding shortfalls, questionable marketing practices and a shift to higher-risk investing at College Illinois.

The Illinois Securities Department regulates investment advisers with $25 million or less under management. Those with more than $25 million in assets are supervised by the U.S. Securities and Exchange Commission.

ISAC Executive Director Andrew Davis moved nearly half the $1.1-billion investment fund backing College Illinois from stocks and bonds into "alternatives" like hedge funds and private equity. Tens of millions went to very small or start-up investment firms that could fall under the Securities Department's regulatory purview.

ISAC tilted toward more-aggressive investment classes like hedge funds and real estate funds as it sought to boost returns and close a 31% gap between assets and long-term liabilities in its fund. College Illinois allows parents to "lock in" future tuition costs at state schools, but whether it can honor those tuition contracts in the future depends on whether there's enough money in the investment fund. Escalating tuition inflation is putting pressure on the fund.

Many College Illinois participants were unaware that the state does not guarantee their contracts, and ISAC's marketing of the program for years touted it as a worry-free alternative to college savings plans that subject parents to market gyrations. ISAC has frozen all new investments and pulled ads amid the investigations of the program.

An ISAC spokesman didn't respond to requests for comment via email and voicemail.